Ruling bloc to put off reconstruction surcharge decision

The ruling coalition was expected Monday evening to delay until the end of December the decision on whether to end the Tohoku reconstruction surcharge for companies a year earlier than planned, amid mounting criticism that it would not lead to wage hikes — one of the arguments in favor of the move.

The ruling bloc is likely to continue thrashing out the thorny surcharge issue while soliciting companies to raise salaries. The administration in September also kicked off three-way talks between the government, private-sector leaders and labor unions in a drive to boost salaries.

“It is hard to explain the termination (of the levy) to the disaster-stricken people,” said Takeshi Noda, the head of the Liberal Democratic Party tax panel after it held an executive meeting Monday. “To end deflation, the government has to take charge in raising wages.”

If Prime Minister Shinzo Abe does the expected and officially decides Tuesday to raise the consumption tax by 3 percentage points, all attention will be on a ¥5 trillion stimulus package designed to keep the economy on an upward trajectory.

Abe had been especially keen to include the termination of the corporate surcharge for Tohoku reconstruction in the stimulus package, but the proposal was met with staunch opposition from both the LDP and New Komeito.

The cut would reduce companies’ annual tax burden by an estimated ¥900 billion. If the surcharge is ended, the government would have to figure out some way to make up for that loss when it drafts the fiscal 2013 supplementary budget.

New Komeito is especially opposed to the proposal, saying the public is in no mood to give companies a break when individuals are facing a 2.1 percent surcharge on income tax for the next 25 years — and wages are remaining stagnant.

Government officials say it is impossible to end the income tax surcharge as it will bolster the Tohoku reconstruction budget by ¥8.1 trillion.

“We will keep discussing the matter to gain public understanding not on the premise that we are set to end the surcharge,” Tetsuo Saito, New Komeito’s tax panel chief, said Monday.

The administration hopes that other key items in the stimulus package, such as incentives for capital spending and an expansion of tax rebates for companies that boost salaries, will eventually push up wages.

The government introduced the tax breaks for companies that boost workers’ salaries by 5 percent this year, but it will be expanded to include businesses that increase wages by 2 percent.

Abe is also expected to introduce payments of up to ¥15,000 for lower income households to stem the impact from the sales tax bump to dodge criticism that Abe’s economic package is focused on companies.